Question

Exercise 14-9 Issuance of bonds; effective interest; amortization schedule; financial statement effects L014-2] when Patey Pontoons issued 6% bonds on January 1, 2018, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 10%. The bondsmature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31, (Ey 1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds at January 1, 2018. 2. Prepare the journal entry to record their issuance by Patey on January 1, 2018 3. Prepare an amortization schedule that determines interest at the effective rate each period. 4. Prepare the journal entry to record interest on June 30, 2018 5. What is the amount related to the bonds that Patey will repo 6. What is the amount related to the bonds that Patey will report in its income stateme (Ignore income taxes.) 7. Prepare the appropriate journal entries at maturity on December 31, 2021 rt in its balance sheet at December 31, 2018? nt for the year ended December 31, 2018? Complete this question by entering your answers in the tabs below. Req 3 Req 4 Req 5 and 6Req 7 Req 1 Req 2 What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2018 and income statement for the year ended December 31, 2018? (Ignore income taxes.) (Round your intermediate calculation to nearest whole dollar.) 5. < Prey 10, 2 Next>

Answer 1

Because the market yield of 10% exceeds the stated rate of 6%, the bonds will sell at a discount, i.e, for less than $600,000

Cash interest = 6% x $600,000 x 6/12 = $18,000

PV of interest: Table 4, 8 payments @ 5% = $18,000 x 6.4632

=$116,338

PV of Face = Table 2, 8 periods @ 5% = $600,000 x 0.6768 =

$406,080

Value of Bond = $116,338 + $406,080 = $522,418

Part 5: What is the amount(s) related to the bonds that Patey will report in its balance sheet at December 31, 2018?

It' ll be reported as follows :

Part 6: What is the amount(s) related to the bonds that Patey will report

in its income statement for the year ended December 31, 2018 ?

(Ignore income taxes).

Interest Expense (26121 + 26527)=52648

I'VE ANSWERED REQUIREMENT#5&6.KINDLY COMMENT IF YOU NEED FULL SOLUTION.THANK YOU !

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